According to all reliable sources, there’s no question that now is a good time to buy real estate in the State of Washington. Markets in cities such as Seattle and Bellevue are particularly attractive. Home values in these areas show signs of upward movement. As we’ve documented elsewhere on our site, if you’re seeking a home mortgage loan, lenders make their decisions based on specific lending criteria. And if you’re aware of these criteria, there are things which can be done to put yourself in a better position to receive a mortgage loan with a good interest rate. Not all mortgage loans are created equal. If you create a more desirable financial situation for yourself – improving your credit score, debt-to-income ratio, etc. – you will increase the chances of obtaining a loan with better rates.
In this post, we will show how you can use your Airbnb rental income to get a better mortgage rates in WA. As we’ll demonstrate, there is a range of ways you can use this income to improve your probability of receiving a good mortgage loan. These are just a few examples. For further counsel, you should consult with a qualified mortgage broker. Markets in Washington State tend to be fairly competitive and so you should do whatever you can to improve your financial condition.
To recap, we will cover:
- Using your rental income to pay off debts
- Using your rental income to generate significant cash reserves
- Using your rental income to document greater financial reliability
Use Your Rental Income to Pay Off Debt
One of the major criteria used by lenders to evaluate eligibility and loan terms is debt-to-income (DTI) ratio. Simply put, lenders will look at how your income compares to your recurring debts to determine your financial capability to repay a mortgage loan. This makes intuitive sense, because a DTI ratio which is too high will mean that a borrower may struggle to pay back a loan in the event of an unexpected setback. Calculating DTI is straightforward: take monthly recurring debts and then divide by monthly income. The quotient is the DTI ratio. Here’s an example: if a person has a monthly income of $5,000, recurring debts of $2,000, then that person has a DTI ratio of 40%, because $2,000 / $5,000 = 0.4, or 40%.
If you have Airbnb rental income, one way you can use your Airbnb rental income to get a better mortgage is to use the income to pay off debt. By doing this, you will be improving your DTI ratio and thereby increasing your profile as a prospective borrower. Again, the more favorable your DTI ratio, the more likely you’ll be able to obtain a quality mortgage loan. By using your rental income to eliminate pre-existing debt, you will definitely be putting yourself in a better position to receive a mortgage loan with good terms.
Use Your Rental Income to Generate Savings
Along with paying off debt, another way you can use your rental income to improve your situation is to generate significant savings. In addition to DTI ratio, mortgage companies also consider your cash reserves when making a lending decision. If you have significant cash reserves (on top of a down payment), this will certainly improve your borrower profile. In fact, significant cash reserves may even be sufficient to counterbalance a DTI ratio which is less than ideal. If you have a DTI ratio which is higher than normal, but have significant reserves, many lenders will be willing to overlook your relatively high DTI ratio. If you stash your rental income and generate significant savings, this may have as much of a positive impact on your borrower profile as eliminating debt.
Use Your Rental Income to Increase Your Financial Reliability
In addition to DTI ratio and savings, another thing which mortgage companies consider when making lending decisions is your financial reliability. Typically, financial reliability is measured by the stability or length of your employment, and borrowers prove this stability or length with documentation. For instance, mortgage companies will want to see proof of income for a certain period of time. If you can use your Airbnb rental income to document your financial reliability, you will contribute substantially to your borrower profile. To do this, you will need to use your Airbnb to generate income on a consistent basis for a significant period of time. You will need to make sure that you keep accurate records of your rental income and have these records available when you apply for a mortgage loan. If you record your rental income properly, you will be showing the lender that you are a reliable borrower. You will also be improving your DTI ratio by increasing your calculable income.
If you have regular rental income from an Airbnb, there are many ways you can use this income to improve your odds of obtaining a good mortgage loan. Ultimately, how much this income helps you depends on how you use it. Many people squander their extra income and fail to keep accurate records. Doing these things will render your rental income essentially meaningless from a mortgage lending perspective. However, if you manage this income properly – such as by doing one of the above suggested things – you can use your Airbnb rental income to get a better mortgage with better rates.
If you’re searching for a good mortgage loan in Washington State, you should use your Airbnb rental income to maximize your situation as best as you can. This is especially true if you’re seeking a piece of real estate in one of Washington’s more competitive real estate markets, such as Seattle or Bellevue. If you’re seeking a property in one of these areas, you will need to build the best borrower profile you can. Toward this end, you should seriously consider implementing one of the strategies identified above. In any case, you should always consult with a qualified mortgage broker in order to determine the best course of action in a given case.
